Trade Beats Foreign Aid For The Developing World

It’s called individual dynamism, and it has nothing to do with a tilt to the left or right. It has a lot to do with basic liberty and how free people are to pursue a better future.

We see it in the economic zones and open-air markets cobbled together by Haitians, in the tech-savvy innovations of Nigerians, the free market flourishing fueled by Singaporeans, and the fashion novelties of Guyanese people. In 2016, this kind of innovative drive can be seen over the world.

I recently thumbed through Clay, Water, Brick by Jessica Jackley. It’s a book that celebrates the microenterprises being built by entrepreneurs who find themselves in some of the harshest conditions for business. I didn’t walk away from the book with a sense of pity. Instead, I was awed by the capacity of enterprise to catalyze economic growth literally anywhere in the world.

But there’s an Achilles heel to this effort, which comes in the form of the international community. This is a term that gets bandied about a lot these days, and every time this amorphous entity surfaces, even implicitly, we are forced to grapple with its reach.

Recently, the international community was stunned by Brexit, which set world
markets roiling for a moment and left pundits speculating about other such unravelings on the horizon. And, if one spends even five minutes watching cable news, virulent criticism of global free trade agreements will be beamed in from the presidential campaign trail.

The next channel over will profess its unequivocal love of free trade and globalization. All the same, grappling with the increasing news means that conversations about economics and markets are sprouting up among ordinary people. And that’s a good thing.

Still, I think we’re in danger of obscuring a larger point about the rough-and-tumble of globalization. When it comes to voluntary economic interactions between independent nations, deep and sometimes menacing footprints are often left behind.

Foreign Aid Losing Legitimacy

Take, for instance, the debate over the ills of foreign aid. The US alone doles out approximately $35 billion annually. Other countries add to that. Yet economists like Angus Deaton have argued that these funds do little to improve the impact of ongoing economic crises around the world. I recently came across an article suggesting that Haiti, for better or worse, has “become the property of the international community.” By that, the author meant that Haiti has come to indefinitely rely on aid from wealthy nations.

Underneath it all, one point is clear to me: no country can belong to the international community. And, in practice, this has been terrible for developing nations.

Works like William Easterly’s The White Man’s Burden and Dambisa Moyo’s Dead Aid argue convincingly that foreign economic aid, on balance, is harmful to fledgling economies. According to Easterly, Western nations that pledge to end world poverty often impose solutions on the people they want to help with little regard for local norms or particularities. And bureaucrats who manage the aid from rich countries have no incentive to listen to the will of the recipients. Using the example of mosquito net makers in African countries that lose their local businesses to Hollywood-generated donations of nets, Moyo says that economic intervention “can unintentionally undermine whatever fragile chance for sustainable development may already be in play.”

Economic failure is a foregone conclusion when these kinds of practices are at work, which is why the notion that foreign aid is absolutely necessary is losing legitimacy.

While Americans can be endlessly generous, I think we understand that nations
must lay claim to their own futures and that people must be free to realize their potential. So there are no simple solutions to the myriad conditions that lead to poverty. The brilliant book Why Nations Fail: The Origins of Power, Prosperity, and Poverty explains that strong institutions are indispensable to prosperous nations. And when it comes to economic institutions, they can neither be imported nor artificially implanted.

Foreign investment is of course preferable to government-sponsored aid. But a number of reports like the Index of Economic Freedom, make it clear that investors shy away from countries lacking political stability, reliable infrastructure, and efficient bureaucracy.

American politicians need to respect the ambitions of people who are laying the groundwork for growth in their own countries and engineering the platforms for their own mobility. Through this process, well-meaning leaders of developing nations can woo investors and sidestep the kind of arrangements that could wipe out local industries. As we embrace innovation at home, we need to extend that ethos abroad—instead of limitless aid with scant oversight.

For a while now, those of us in highly industrialized nations have been in the throes of paternalism, aided not only by mawkish politicians but also by media outlets, which toe the line that wealthy nations should fill in the budgets gaps of less affluent nations. If people really want to see the eradication of world poverty, they shouldn’t hang their hats on the largesse of the international community. Instead, they should look to the power of free markets and self-actualization. Perhaps the greatest threats to these are aid policies that actually stifle the entrepreneurial activity of individuals.